How To Convert An LLC To A Corporation?
For a new business owner, choosing their business’ legal entity is a significant decision. Making this choice comes down to the differences in personal liability, business associated taxes, and other contributing factors and context within the actual business itself.
What Is An LLC?
A limited liability company (LLC) is one of the simplest business forms. One of its main advantages is that the business owners are not personally responsible for a company’s debts or lawsuits. Furthermore, an LLC does not need to file corporate taxes. In what is called pass-through taxation, the business owners only have to report profits on their individual tax returns. Furthermore, an LLC is relatively flexible, with members deciding how to formally structure (or not) their business along with determining the frequency of annual meetings, if any are held. While there are other advantages, partnered with disadvantages as well, one last thing that must be mentioned is that an LLC cannot list their business on the stock market.
What Is A Corporation?
In this case, we’ll define a corporation as a C corporation. They are much more formal than LLCs in practice and when being created. A business will file for incorporation at a state level, and they must have annual meetings with shareholders and board of directors. Furthermore, a corporation is double taxed; a business’ profit will be taxed in its corporate tax return and then again when individual owners file personal tax returns.
Process Of Conversion
If a business started as an LLC, they can still convert to a corporation. The streamlined procedure begins with the business having a plan of conversion, and submitting Articles of Incorporation to the Secretary of State. The plan will include information such as the name and place of the new corporation, the name and place of the LLC, necessary provisions and more.
Only after the approval of this plan can a business then file their Article of Incorporation along with a mandatory $150 filing fee. This Article must be signed by all members of the LLC. The statement of conversion included in the Article will comprise of the name of the LLC, its Secretary of State file number, proof that the conversion was approved by the company’s members, and the form of organization.
Once these steps have been taken and approved, a corporation must also formally set out its corporate bylaws, issue stock certificates, elect and appoint persons, and hold board meetings. All of these specific measures, from the beginning, can be best done with the guidance of a lawyer. They can protect the rights of the company and ensure that it becomes incorporated the correct way.